Bernanke repeated that the Fed was likely to keep interest rates exceptionally low for an extended period, a pledge that weighed on the U.S. dollar and drove investors to snap up shares of natural resource companies as prices of global commodities -- from gold to wheat -- shot higher.

In a speech before the Economic Club of New York, Bernanke said the recovery would not be as robust as previously hoped, and rising unemployment and tight bank lending were significant headwinds.

The overriding message from Bernanke is that interest rates will stay low and remain low for the near to medium term. It seems that the market likes that, said Dennis Cajigas, senior market strategist at Lind-Waldock, a retail brokerage firm in Chicago.

Investors essentially are borrowing against low rates in the dollar and putting that money in areas that they feel will react well against inflation, such as crude oil, energy, gold, commodities (and) stocks because the expected return should be higher over time.

In the last hour of trading stocks briefly pared gains as Meredith Whitney, a prominent analyst, said in a CNBC television interview the stock market run-up was not supported by fundamentals.

The Dow Jones industrial average gained 136.49 points, or 1.33 percent, to 10,406.96. The Standard & Poor's 500 Index shot up 15.82 points, or 1.45 percent, to 1,109.30 -- its first close above the psychologically important 1,100 level for the first time since October 2008.

On Nasdaq, Intel Corp shares rose 2.2 percent to $20.25 after the chipmaker raised its quarterly dividend by more than 12.5 percent. The semiconductor index climbed 2 percent.

Monday's economic data showed October retail sales rose a brisk 1.4 percent last month but were much less impressive with auto sales stripped out. In addition, September figures were revised to show a larger drop overall than earlier reported. [nN16507114]

Even though Bernanke made a rare statement on foreign exchange markets, saying the Fed was watching the U.S. dollar closely, the greenback found very little reprieve.

The United States and China failed to reach an agreement over currencies at a summit of the Asia Pacific Economic Cooperation forum in Singapore.

Bernanke, commenting on the dollar's decline, said the Fed is attentive to changes in the U.S. currency, and the Fed's mandate will help ensure the greenback remains strong.

If you take away stimulus, this economy falls apart. He knows it. He's boxed in here, he can't raise rates. It's impossible, said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. So what do we do? We continue to buy equities because that's what the trade is.

Volume was moderate, with about 1.15 billion shares changing hands on the New York Stock Exchange, below last year's estimated daily average of 1.49 billion. On the Nasdaq, about 2.13 billion shares traded, below last year's daily average of 2.28 billion.

Advancing stocks outnumbered decliners on the NYSE by a ratio of about 9 to 2, while on the Nasdaq, nearly seven stocks rose for every two that fell.